New Proposed Fed Policy Actually Old Agenda … Only Worse (Video)

On his latest podcast, Peter Schiff takes New York Federal Reserve President, William Dudley, to task for his off-the-cuff remarks about a September rate hike. Peter also looks at the fine print of San Francisco Federal Reserve President John Williams’s new “era” monetary policy proposal, which is only a panacea if you want higher inflation, lower interest rates, and more quantitative easing.

Highlights from the Peter Schiff Podcast

The dollar was broadly weaker today with the dollar index closing down .85 to 94.78. At that time, gold was up about $18; silver up about 25 cents. Then, all of a sudden, Dudley, in an interview on Fox Business, basically said that a September rate hike was still possible.

Look, a September alien invasion is still possible, but I’m not going to waste my time preparing for it. What’s amazing to me is how all of the villagers still come running every time a Fed official cries “Wolf!” Haven’t they noticed that they’ve cried, “Wolf!” over and over again and there’s never a wolf?

I think that Dudley purposely came out and mentioned a September rate increase just to keep the markets in check; to preserve the false narrative that there is actually a recovery, instead of a bubble.

All of a sudden, gold sold off, it went from +$18 to +$2 or $3. Silver went negative; it lost its entire rally in a matter of minutes.

I think Dudley was trying to undo the damage done overnight by his counterpart at the San Francisco Fed, John Williams’ well-thought out paper. Williams wrote in his piece that he believes we’re in a “new era”.  He doesn’t understand that the new era that we’re in is collateral damage from central bank monetary policy. They think this is a random occurrence that needs a new government prescription.

John Williams is proposing, based on this “new normal” that the neutral interest rate is so low, it’s almost impossible for the central banks to get there, absent negative interest rates. What Williams is proposing, is more inflation. What he is arguing is that we should scrap this 2% inflation target and that we need a higher number.

I’ve been saying for years that this is going to happen. It’s just like the unemployment rate, where they said, “We’ll raise interest rates if it gets below 6.5% and then we let it go below 5%. We kept moving that goal post. I said the same thing was going to happen to inflation.

In fact, it is happening.  If you look at the CPI numbers that just came out today, we continue to be above the 2% level on the core; we’ve been there for many months in a row. Now they’re already starting to say, “Hey wait a minute, 2% isn’t high enough.”

We need more inflation because we need lower rates and the only way to get there is to have higher inflation. This is what I have been expecting. If you read William’s piece, he says one of the ways we should get there is for the Fed to target nominal GDP. In other words, not GDP after you adjust for inflation.

I’ve argued that the deflator is under the actual inflation number, therefore overestimating GDP growth.

The Fed is saying, “Who cares about the GDP deflator? All we care about is the nominal number. We don’t care if the growth is real or inflationary. We just want nominal GDP numbers to go up.” What good is that? No one benefits from phony GDP growth that is simply a by-product of inflation.

The whole point is that we want the economy to actually grow, not for just prices to go up. But what Williams is saying is no, all we care about is prices going up. It’s all about style over substance. That’s why we’re stuck in this malaise.

Additionally, what Williams was also arguing for was more fiscal stimulus. He was saying that we’re at the end of our rope with interest rates practically at zero. We need the government to provide more stimuli in the form of deficit spending. We’ve already got about a $20 trillion national debt.

If deficit spending were stimulative, why haven’t we gotten a huge stimulus from that $20 trillion of debt? That $20 trillion is an anchor weighing down the economy and Williams is calling for another anchor. The more the Fed stimulates the economy, the more the economy is sedated.

Eventually, the economy is a corpse and they keep trying to stimulate it anyway; they don’t even realize that they’ve killed the patient. That is exactly what is going on. Of course, if we run even bigger deficits, based on what the Fed is advocating, how will we finance them?

The Fed also wants to keep interest rates low. Well, if the government tries to borrow a lot more money, let’s say we run the budget deficit up to $1.5 – 2 trillion a year, who’s going to buy all those treasuries? Obviously, it’s going to be the Fed.

So what Williams is really advocating when he wants to sell more bonds but keep interest rates low, is more quantitative easing.

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